Paulson holds extraordinary economic power

The Dow Industrials closed well below the 9,000 mark Thursday, down 678 points, almost 40 percent off last year's high. What triggered it? Word that Standard and Poor's is considering cutting its credit rating for General Motor would be a huge blow. GM stock dropped 31 percent while the S&P 500 fell 7.5 percent.

Treasury Secretary Henry Paulson is thinking of using some of the $700 billion in the rescue plan to buy part ownership of banks. That will give banks money to lend out. Their unwillingness to do so has caused the credit freeze. Adding to the stress is the huge drop in GM's stock, making its value about what it was worth just before the 1929 crash.

"The key is what the secretary believes is necessary to restore financial market stability," said John Hunt, research director of the law and finance program at the Berkeley Center for Law, Business and the Economy.

From Congress to the White House, Washington is desperate to get Wall Street and credit moving again. And every day, there seems to be a new tool in Paulson's arsenal.

Hunt spent 10 hours studying and analyzing the federal rescue plan. He says the language of the plan gives the Treasury wide latitude to do what it thinks is best, including ideas no one has considered.

"If Secretary Paulson or the Treasury secretary were to decide that what was really at the heart of our financial problems was our energy dependency or excessive use of gas, he could decide that he wanted to put three million Priuses in the hands of the American people by telling Toyota they could lease these three million Priuses for a dollar a month, and then he would buy the leases from Toyota's bank subsidiary for $700 billion," said Hunt.

The problem is the world credit crunch has not eased. Banks are afraid to lend money, stocks are getting hammered, and small businesses, such as Chuck Broderick's Big O Tires store, are suffering.

Broderick used to service 66 cars a day. Now it is down to 36. Customers who used to buy four tires are buying only one.

"Used to be that when they had a recession, people would stop buying cars, but they'd fix their older cars or delay purchasing a new car. And now, they're not doing either," said Broderick.

The latest Paulson idea is to inject money into U.S. banks. That would make taxpayers part owners. The Treasury secretary can move quickly, without seeking approval, which raises questions about accountability once a deal is done.

"Yes, it's certainly cause for concern. However, the alternative may be worse," said Hunt.

Paulson's vast powers under this rescue plan will transfer to the next president's Treasury secretary. Who will that be? Both candidates have mentioned billionaire investor Warren Buffett. Other names that have come up are former eBay CEO Meg Whitman and former Merrill Lynch CEO John Thain.

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